5 things that I wasted money on while running Molzi.
You have to speculate to accumulate when growing a business. And we did a lot of speculating during the 4 years of starting, scaling and selling Molzi. But some of that speculation didn't result in accumulation. So rather than you making the same mistakes, I thought I'd share them.
But sometimes you need to make your own mistakes to truly learn. So feel free to still make them.
Below are the 5 main areas that we wasted money.
We wasted money, but also saved money. By saving on 3rd party bin management costs...
Pay rises & promotions
Now, this title doesn't paint the best picture of me as a boss. Maybe it should be worded "the wrong pay rises & promotions".
This was driven totally by naïvety and only really applied to our first year or two in business. We wanted to proactively give people pay rises based on good performance as the company grew and could afford it. Nothing boosts morale better than an unprompted pay rise rather than a requested one. And this strategy I would recommend if the commercials allow. The problem was the size of the pay rises.
For no other reason than to make nice round numbers, if we would give someone who earns £25k a payrise, we would increase them to £30k. If someone earned £40k we increased them to £50k. Again, just because it seemed like the neatest increment. But then I realised that the average annual pay rise in the UK was around 5%. On a £25k salary that would be just an increase to £26,250. But we were jumping in £5k or £10k increments, sometimes more than once a year.
As we grew the team and started to build processes for pay rises, it was very difficult to reverse out of the huge leaps and into a much more sustainable policy.
In a similar vein, we wasted money in the very early stages promoting people that didn't need to be promoted. It wasn't based on merit or necessity in some cases, but purely to make the org chart look better. If we hired a Head of Advertising for example, we would promote someone to Head of Content to even things up. But sometimes that person wasn't ready for the step up, or didn't even want it. But always it came with a nice, neat, round number pay rise.
This really started to bite as we got bigger. When you're a small team, no software is really expensive. £50 a month here, £70 per month there. But suddenly you have 80 people and those monthly bills are well into four figures.
When the costs were negligable then we didn't really care about what ROI they were bringing, but before you know it the costs are significant and the team can't survive without them.
We were paying big money for software that automated processes, but it wasn't clear that it was reducing the headcount costs in return. At the point we were acquired we were still a relatively small company, but I'm confident that if I had really needed to I could have cut £10k a month of costs with almost zero impact on the business, apart from a few moans from the team initially.
"Err Chris, I thought you guys were a marketing agency?".
Yep, you make a good point. I think we were actually excellent at marketing. But we didn't realise it at the time because the marketing we were doing was focussed on sharing our journey on Linkedin. It's called personal branding now, but back then it didn't feel like a proper strategy. It ended up bringing in over 80% of our total revenue over the life of the company.
But because we didn't realise we already had a really effective marketing strategy, and because we were obsessed with growth, we tried to do lots of other 'marketing'.
At one point we had a team of 3 people in marketing, which was over 10% of our total team at that time. I'm pretty sure they hated their jobs because we changed our strategy pretty much daily. We started spending money on SEO, Google Ads, events. I wanted to see a return, but it was minimal compared to our organic social strategy. We started to see some success in driving more leads through our website, but then realised that every client we had ever signed from our website was a disaster. Too small and not a fit for our offering.
We stopped, removed the marketing function and grew like never before. Not because what we were doing was bad, but more because it allowed us to just really accelerate what we'd already been doing.
A similar story to the marketing section above. I had heard that marketing agencies could get better multiples when selling if they could show they had some kind of tech platform. So I wanted Molzi to have one. The problem, I had absolutely no knowledge of data and tech. So I had no idea who we needed to hire, or what I should be asking them to do.
As a small start up at the time, I went for junior people that didn't impact EBITDA too heavily. But guess what, they were only as good as the guidance I gave them. Which was terrible.
Over the 4 years of Molzi I think we sunk £500k into developing our tech platform. A combination of the wrong hires, technical debt and constantly changing strategy. By the end we had a pretty good product, but did it impact the valuation when we sold? I don't think they even looked at it.
If I was to do it all again (please god no) I would make the first hire the person that would own the project and drive the vision. Even if that meant waiting a year or two until we could afford that person. I do think if we had done that we may have been able to get a significantly higher valuation from someone when we sold.
In order to accelerate our growth we placed bets. Not stock market type bets, but bets in growth projects. It could have been new service offerings, or new countries, or new business development strategies. Basically significant investments that would open up new routes to revenue.
The early bets were all very successful and completely changed the momentum of our business. But as revenue grows, the increase in revenue needed to maintain growth rate also significantly increases.
By the end we had up to 10 of these bets in play at a time. Some of them worked well, and that gave us the growth we craved. But a lot of them didn't and we were slow to cancel them. This resulted in a lot of money wasted.
An important point to consider is that there's no way we'd have grown so quickly without this wasted spend. We knew at any point that we could optimise the business for EBITDA if that became the priority. But in the short term we focussed on growing the top line revenue, because you'd be optimising a much bigger business. Cost cutting is a great way to grow margin, but there is a ceiling that is governed by your revenue.